Wednesday preview: Tesco expected to reveal LFL decline in Q3

All eyes in the retail industry will be focused firmly on supermarket giant Tesco on Wednesday morning with the company scheduled to report on third-quarter trading.

Last week, Nomura released a research report on Tesco (rated 'buy'), saying that it forecasts third-quarter like-for-like (LFL) sales excluding VAT and fuel to come in 0.9% lower than last year, a reversal from the 0.1% growth reported in the second quarter.

Similarly, Credit Suisse (which rates Tesco as 'neutral') said it expects "little underlying progress" in the third quarter given tough markets: the broker reckons that LFL sales ex-fuel ex-VAT will fall 0.75% in the quarter.

Seymour Pierce last week reiterated its 'reduce' rating for the stock, saying that it is too early to judge whether the group's 'Build a Better Tesco' strategy in the UK (through range and store refresh, space relay, service and increased marketing/promotional spend) is working. "From a share price perspective even if Tesco does have a relatively good Christmas, there will still be no visibility on whether UK profits have bottomed until the second half of 2013," said Seymour analyst Kate Calvert.

However, analysts at Jefferies decided to stay more upbeat, keeping their 'buy' recommendation on Tuesday and saying that Tesco is "gaining traction ahead of Xmas".

While the broker highlights that sales growth across the 'Big 4' supermarkets (Tesco, Morrison, Sainsbury and ASDA) was "subdued" last month (according to retail figures from Kantar), Tesco's market share continues to grow. Jefferies said that Tesco has outgrown (on a market share basis) its peers by 200 basis points ("the biggest rate of outperformance recorded in any four-week period for six years") and improvements in execution are starting to pay off.

"Tesco is approaching Christmas with the strongest trading momentum of the Big 4, and this seems to be hurting Sainsbury. Morrisons trading form remains poor, whilst ASDA is slowing in a controlled manner."

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